The Hague Trusts Convention explained

The Hague Trusts Convention sets rules for identifying the law governing a trust and recognizing that trust.

What the Convention means by a trust

The Convention defines a trust as a legal relationship involving assets controlled by a trustee for a beneficiary or a specified purpose. The settlor is the person who creates that relationship, which can begin during that person's life or upon death.^[1]

Trust assets form a distinct fund outside the trustee's personal estate. Title is held either by the trustee or by someone holding it on the trustee's behalf. The trustee has both authority and responsibility to administer the assets under the trust terms and the duties imposed by law.^[1]

A settlor's retention of some rights or powers does not necessarily prevent the relationship from being a trust. A trustee's own rights as a beneficiary do not necessarily prevent it either.^[1]

Scope of the Convention

The Convention addresses the governing law of trusts and their recognition. Its basic scope is limited to trusts established voluntarily with written evidence of their existence. These are separate requirements, so voluntary creation alone does not satisfy the stated scope.^[1]

Preliminary questions about whether a will or another act transferring assets to a trustee is valid fall outside the Convention. Its rules also do not apply to the extent that the law identified under Chapter II lacks trusts or the particular trust category involved.^[1]

How the governing law is identified

The settlor's choice of law is the starting point under Article 6. That choice can be explicit or inferred from the instrument creating the trust or the writing evidencing it, with surrounding circumstances used for interpretation where necessary.^[1]

If the chosen law lacks the relevant trust institution or category, that choice has no effect and Article 7 supplies the governing rule. Article 7 also applies when no applicable law has been selected, using the law with the closest connection to the trust.^[1]

The specified connections include the administration location designated by the settlor and the location of trust assets. They also include the trustee's residence or business location, together with the trust's purposes and where those purposes are to be carried out.^[1]

What the governing law determines

The law identified under Article 6 or 7 determines the trust's validity, interpretation, effects and administration. Its reach includes how trustees enter or leave office and whether they have the capacity to serve.^[1]

That law also governs trustees' investment powers, changes to or termination of the trust, distributions, and accounting for administration. A separable part of the trust, particularly administration, can be governed by another law. Whether a governing law can be replaced is itself determined by the law applicable to the trust's validity.^[1]

How recognition works

Article 11 provides for recognition when a trust has been created under the law identified by Chapter II. Recognition includes treating trust property as a distinct fund and permitting the trustee to act in that role before a notary or another person acting officially.^[1]

Article 12 permits registration of assets or title documents in a way that identifies the trustee's role or discloses the trust's existence. This entitlement depends on compatibility with the law of the state where registration is requested.^[1]

Limits on recognition and application

Recognition is subject to qualifications within the Convention. Under Article 13, a state need not recognize certain trusts whose significant elements connect more closely with states lacking the relevant trust institution. That assessment excludes the selected law, administration location and trustee's habitual residence.^[1]

Article 16 preserves certain mandatory rules of the forum even in international situations. Article 18 permits departure from Convention provisions when their application would be manifestly incompatible with public policy. Article 21 also permits a reservation limiting Chapter III recognition to trusts governed, for validity, by a contracting state's law.^[1]

The boundary with tax matters

The Convention leaves states' fiscal powers intact under Article 19. For a U.S. citizen reading about its scope, the distinction is between its rules on trust law and recognition and the fiscal powers expressly preserved by that article.^[1]

Questions and answers

Does the settlor always need an explicit choice-of-law clause?

Article 6 permits a choice inferred from the trust instrument or written evidence. If no applicable law has been chosen, Article 7 uses the trust's closest connection.^[1]

Can different laws govern different parts of a trust?

Article 9 permits a separable aspect to have a different governing law. It expressly identifies administration as one possible example.^[1]

How does the Convention address different territorial trust laws?

Article 23 treats a reference to a state's law as referring to the relevant territorial unit's law where units have their own trust rules. Article 24 does not require application to conflicts confined to laws of units within that state.^[1]

Does recognition under the Convention change states' fiscal powers?

Article 19 preserves states' authority over fiscal matters. The Convention's stated functions concern applicable trust law and recognition.^[1]

Related glossary terms

Recognition of a trust: The Hague Convention describes recognition of a trust, its minimum legal effects, and limits tied to applicable law. Jersey law also addresses recognition.
Proper law of a trust: The Jersey Trusts Law defines proper law as the jurisdiction's law expressed or implied in trust terms, or most closely connected to the trust when created.
Trust duration: Trust duration is the period a trust may continue. The Hague Convention says applicable law governs duration limits and other trust terms for a trust.